If everyone is buying and holding,
why does the Market drop?
The contraction or "Bear Market" from April 2000 through to October
10th 2002 was the most severe since the Great Depression; although severe, this type
of environment is common throughout market history.
When prices are high, many are selling.
Expansion and Contraction in Markets
Market Cycles defined by the S&P 500 Total Returns (%) (Source: Dimensional Funds)
Up Markets" Expansion Phase
Down Markets" Contraction Phase
Dates
# of
months
S&P
500
Dates
#
of
months
S&P
500
Dec. 1929 - Mar.1930
4
21%
Apr. 1930 - Jun. 1932
27
-80%
Jul. 1932 - Aug. 1932
2
92%
Sep. 1932 - Feb. 1933
6
-30%
Mar. 1933 - Jan. 1934
11
105%
Feb. 1934 - Jul. 1934
6
-21%
Aug. 1934 - Feb. 1937
31
135%
Mar. 1937 - Mar. 1938
13
-50%
Apr. 1938 - Dec. 1938
9
61%
Jan. 1939 - Apr. 1939
4
-6%
May 1939 - Sep. 1939
5
22%
Oct. 1939 - May 1940
8
-26%
Jun. 1940 - Oct. 1940
5
22%
Nov. 1940 - Apr. 1941
6
-13%
May 1941- Aug. 1941
4
14%
Sep. 1941 - Apr. 1942
8
-22%
May 1942 - May 1946
49
49%
Jun. 1946 - Apr. 1947
11
-21%
May 1947 - Oct. 1948
18
23%
Nov. 1948 - Jun. 1949
8
-10%
Jul. 1949-Jul. 1957
97
429%
Aug. 1957- Dec.1957
5
-15%
Jan. 1958- Dec. 1961
48
105%
Jan. 1962- Jun. 1962
6
-22%
Jul. 1962- Jan. 1966
43
90%
Feb. 1966- Sep. 1966
8
-16%
Oct. 1966 - Nov. 1968
26
52%
Dec. 1968 - Jun. 1970
19
-29%
Jul. 1970 - Dec. 1972
30
76%
Jan. 1973 - Sep. 1974
21
-43%
Oct. 1974 - Dec. 1976
27
86%
Jan. 1977 - Feb. 1978
14
-14%
Mar. 1978 - Nov. 1980
33
86%
Dec. 1980 - Jul. 1982
20
-17%
Aug. 1982 - Aug. 1987
61
282%
Sep. 1987 - Nov. 1987
3
-30%
Dec. 1987 - May 1990
30
71%
Jun. 1990 - Oct. 1990
5
-15%
Nov. 1990 - Apr. 1998
90
345%
May 1998 - Aug. 1998
4
-13%
Sep. 1998 - Aug. 2000
24
63%
Sep.2000 - Sep. 2002
25
-45%
Annual gains experienced by a HOLD strategy over 20 years 1929-1949 = 3.8% per yr.
Annual gains experienced by a HOLD strategy over 12 years 1966-1978 = 4.1% per yr.
Expansion Phase
Averages
Contraction
Phase Averages
22 "Up Markets" 1926 - 2000
Average length 31 months
Average 117% gain per cycle
22 "Down Markets" 1929-2002
Average length 10 months
Average 26% loss per cycle
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